Palm Oil Farmers Demanding to Reformulation of FFB’s Price
Smallholder oil palm plantations in Indonesia have shown remarkable developments over the last few decades. In the late 1970s, there was no such thing as smallholder farmer in Indonesian palm oil statistics. However, thanks to the program initiated by the Indonesian government in the form of nucleus-plasma partnerships and also the courage and independence of the people to become independent oil palm farmers in cultivating their oil palm plantations, has implications for the quite revolutionary development of oil palm plantations.
This is also confirmed by the Palm Oil Statistics (2020), the area of smallholder oil palm plantations increased from only around 6 thousand hectares in 1980 to 5.8 million hectares in 2018, or the share reached 41 percent. The development of smallholder farmers in oil palm plantations such a way has also succeeded in making Indonesia the king of world CPO, as well as becoming the leader in the global vegetable oil market.
People, through their oil palm plantations, which have developed and grown in remote areas where economic life has not yet developed, are able to become a “torch” to the village economy and regional economic development through increasing income, creating job opportunities and reducing poverty (PASPI, 2016). This means that through oil palm plantations, the farmer are able to make themselves and their families prosperous and also able to become pioneers of economic actors in rural and remote areas.
However, behind the large contribution made, smallholder farmers, especially 2.1 million independent oil palm farmers, still feel injustice, especially in relation to the purchase price of Fresh Fruit Bunches (FFB).
Currently, the determination of the purchase price for FFB is based on the Peraturan Menteri Pertanian Republik Indonesia No. 01/PERMENTAN/KB.120/2018 concerning Guidelines for Establishing Purchase Prices for Fresh Oil Palm Fruit Bunches for Smaller Production. The price formulation is determined by the Team for Pricing to Purchase FFB at the provincial level which consists of provincial and city/district governments, oil palm plantation companies/associations and representatives of oil palm farmers/associations, at least once every month although there are several teams that formulate prices every week or twice a month. And of the 25 palm oil center provinces, only six have followed up on this regulation, namely: North Sumatra, Bangka Belitung Islands, West Kalimantan, South Kalimantan and South Sumatra. The purpose of this regulation is to provide protection for oil palm farmers in obtaining a fair price for FFB and avoid unfair competition between plantation companies or mills.
If we look from the objectives, this regulation seeks to improve welfare, equity and justice for smallholders, both plasma and independent. However, the facts are far from expectations, that not all oil palm farmers receive the same price when selling FFB to Palm Oil Mills. According to Gulat Manurung, Chairman of APKASINDO, the current FFB price is divided into three groups, namely: the FFB price for the internal group of the Palm Oil Mill, the FFB price for plasma farmers and the FFB price for independent smallholders farmers. And this regulation does not specifically regulate three price groups for each FFB producer, so that the Palm Oil Mill, on a top-down basis, can freely determine the price of the FFB, especially to indenpendent smallholder farmers.
In Palm Oil Mill, the FFB prices which accepted by independent smallholders famers are not appropriate and even much lower than the FFB formulation prices set by the Provincial Level FFB Pricing Team. Independent farmers receive a FFB price discount of around 60-70% of the FFB price received by plasma farmers. Apart from being cut because they are not from plasma farmers/company partners, independent oil palm farmers must also receive another discount, namely the assumption that there is about 10 percent waste. Especially when the harvest is high, the independent smallholders’ FFB will be increasingly characterized by Palm Oil Mill because the supply is sufficient from plasma, the implication is that the price of independent smallholders FFB will be lower.
The Chairperson of APKASINDO also said that oil palm smallholder farmers between regions receive a relatively large difference in FFB prices. For example, farmers in South Sulawesi and West Sulawesi receive a FFB price of 50 percent of the average FFB price in North Sumatra and Riau, even though FFB everywhere will produce CPO. The leader of one of the oil palm farmer associations also joked about the relatively large price difference by questioning whether the FFB of the South Sulawesi farmers only produced CPO crust instead of oil, so the price was very low.
In addition to lower FFB prices, oil palm farmers are also demanding a revision of the FFB price formula by including one of the palm biomass which has a high economy, namely shells. The potential of palm kernel shells as an environmentally friendly and inexpensive energy source has been in great demand by global markets such as Japan, China, South Korea, Taiwan, Thailand and Poland.
Japan, as an importer of palm kernel shells, uses this biomass to generate electricity with the Feed-in Tariff scheme. Even the Japanese Government through the Ministry of Economy, Trade and Industry (METI) issued an incentive policy for power plant companies that use palm kernel shells as their raw material.
The large global market demand for palm shell products has implications for an increase in the selling price of palm kernel shells. The Chairperson of the Asosiasi Pengusaha Cangkang Sawit Indonesia (APCASI) confirmed this, where the high demand can pushed up the selling price of palm kernel shells at the factory level this year, namely Rp. 800 thousand/ton-Rp. 1,000,000/ton, compared to last year’s around Rp. 500 thousand/ton – Rp 600 thousand/ton excluding VAT. By accommodating the economic value of biomass such as palm kernel shells, it is expected that it can increase the price of FFB and prevent underestimations.
The dialogue was also attended by Dr. Donald Siahaan, a senior researcher at the Oil Palm Research Center (IOPRI), who also suggested that the Provincial Team should update the general rendement data every 3-5 years according to natural developments and plantation management. This needs to be done to minimize the underestimated FFB price formulation.
Suggestions from representatives of oil palm farmers and experts in the national palm oil sector regarding the revision of the FFB price formula in the Regulation 01/2018 have also been responded to by the Ministry of Agriculture of the Republic of Indonesia. It’s expected that this dialogue can produce a win-win solution for all national palm oil industry players, especially independent smallholder farmers, so that their welfare can increase and they feel treated fairly and equally.
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